RealTrouble

W hen he wrote his recent analysis of online media company RealNetworks and its prospects for the future, equity analyst Scott Kessler of Standard & Poor’s in New York praised its "significant opportunities" in online media and games, but said changes in the company’s business model, operating losses and "management turnover over the past few years…still concern us."

In April alone, the company’s president stepped down, and it brought in a new senior vice president for human resources; moved its senior vice president of marketing to senior vice president, international; promoted an employee to vice president and chief technology officer; and promoted another to vice president, video services. Last year, the company lost its chief financial officer, its senior vice president of RealOne services and its vice president of human resources.

RealNetworks spokeswoman Erika Shaffer says part of the turnover stems from changes in the company’s business focus. RealNetworks developed RealPlayer and RealAudio, streaming media that allows audio and video files to move across the Web and lets people hear and see them on their computers. It recently ended deals for content with Major League Baseball and the Professional Golfers’ Association. Now it’s emphasizing media subscription services such as music and games.

Shaffer says the management changes at the Seattle-based company aren’t out of line. "The turnover is a lot lower than the industry average overall," she says. "A lot of key managers in place have been here about three years."

Kessler isn’t inclined to agree. He says it’s "one thing" for a company to pursue new opportunities, and "another thing, it seems to me, when you’ve had some pretty substantial changes to your strategy and management team over the past few years."

Flying soda cans? For 2003, the company reported sales of $202.4 million, up 11 percent from the previous year. Yet that resulted in a net loss of $21.5 million, compared to a net loss of $38.4 million in 2002. In July 2004, shares were trading at about $6.27 each.

In comparing companies that have stable management teams with those given to frequent changes, "you can bet on which of the two types of companies would be more successful," Kessler contends.

Some point a finger at RealNetworks’ CEO Rob Glaser, who left Microsoft to found the company in 1994. A 2001 Business Week article reported that at RealNetworks, Glaser sometimes directed outbursts of profanity at employees who didn’t meet goals and occasionally would hurl soda cans to show his displeasure.

"He’s a brilliant guy," Kessler says. "Sometimes brilliant people have a hard time communicating how they want things done."

Alan Davis, an analyst with McAdam, Wright, Ragen in Seattle, says Glaser has a "reputation of being kind of aggressive, demanding, in your face a little bit."

"This kind of behavior is not unusual in more entrepreneurial endeavors," says Carl Robinson of Advanced Leadership Consulting in Seattle, a hot spot in the ever-changing high-tech market and a place where a number of companies have a reputation for a rough-and-tumble management style.

Robinson, a psychologist who primarily coaches executives at small and medium-sized firms, says volatile leaders are "very charismatic, very smart, exciting to be around. They do great things." However, he adds, employees may tire of such an environment and walk out the door.

Encouraging differences To be successful, companies need a high level of change, balanced with a culture in which employees feel valued. But studies have shown that over time, "companies are notoriously poor at doing this," says Theresa Welbourne, an adjunct professor of organizational behavior and human resources management at the University of Michigan Business School and CEO of eePulse. Her focus is management in high-growth, high-change organizations. Welbourne says that a successful leader "pushes people for excellence, but at the same time instills confidence that the team can get there."

Allan Cohen, a professor of global leadership and director of corporate entrepreneurship at Babson College in Massachusetts, says successful entrepreneurs can have a tough time making the transition to becoming successful managers. They’re driven by their strong desire to start a company, but may have trouble working with others and communicating their goals.

"One of the things pulling strong-minded people together--whether technical or creative--is having a common vision," says Cohen, who co-authored Managing for Excellence and Influence Without Authority.

Other companies thrive by encouraging people to express very different points of view. "This builds a culture that celebrates those kinds of differences," Cohen says, and management "expects them to fight really hard for what they’re saying but in a way that is respectful of each other." He also encourages organizations to consider allowing creative people time to pursue their own interests.

Surveys show that the main reason employees quit their jobs is that they don’t feel appreciated by their boss, says Ann Fry, a management coach in Austin, Texas. Many managers fall short because they have good technical skills but have not received any leadership training. New managers need to have good listening skills, communicate effectively, be adept at conflict resolution, and appreciate and recognize their staff.

It also can help to bring in an outside expert to review the management skills of those already in place. The expert can determine what their strengths are, such as planning, administering or taking action. Using that information, companies are "not just hiring people because there is a hole, but doing strategic hiring to balance out what is missing," Fry says.

As for CEOs, Fry acknowledges that it can be lonely at the top. "Often, CEOs don’t have people to reach out to and ask for help. They need someone outside the company to confer with. If they go to someone inside, they might think they are weak and don’t know what they’re doing."